TOWARDS GREEN GROWTH

National Business Forum on Sustainable Development, Canberra

16th June 2011

Simon UptonDirectorOECD Environment Directorate

For more information, see www.oecd.org/greengrowth

Growth & development

Wealth and GDP (2005 US$ per capita, wealth on bottom axis)

Low income

Middle income

Growth – not just a developing country concern

JobsDebtDemographics

The need for green

2050

World GDP (2005, PPP)USD 300 trillion

2030

USD 150 trillion

2010USD 70 trillion

1990

Food + 35%

Energy + 37%

Resources + 70%

Source: OECD Source: Global Footprint Network

Risks in not going green: bottlenecks

Source: World Bank Source: OECD.

Risks in not going green: shocks to food supply

Production +35%

Land +6%

Land at risk of erosion + 17%

By 2030, business as usual:

Biodiversity loss(2000-2030)

Pressures on natural capital

Water scarcity +30%

% mean species abundance loss

Source: OECD

Risks in not going green: water scarcity

Living with risk of water scarcity (millions of people under water stress)

Source: OECD

Risks in not going green: pollution and human health

Premature deaths from PM10 exposure(per million inhabitants)

Source: OECD

Risks in not going green: systemic risks

GHG emissions and climate change(per million inhabitants)

Costs of climate change(% loss, present value of consumption)

Source: OECD (see e.g. OECD (2008) “Costs of Inaction”) and UK Treasury “Stern review”

Better measurement: the capital base of economies

Source: Arrow et al (2009) in NBER WP 16599

Capital stock shares

Better measurement for better policy choices

Cost of GHG mitigation: GDP and GDP+(Impact in 2050 of a 50% cut compared to 2005)

Source: OECD

If green policies have a cost, bad economic policies can be worse

The gap in 2050 = 4%

Direct cost of GHG mitigation

Source: OECD

Structural reforms

Getting the environment for investment right

Source: OECD

ICT

inve

stm

ent

% o

f tot

al, a

vera

ge 1

995-

2005

Regulatory burden in network industriesEnergy, transport and communications, Average1993-2003

Killing two birds with one stone - Green Fiscal Reform

US

New Zealand

Japan

Ireland UK

Switzerland

Greece

Sweden

Netherlands

Revenue from taxes on energy, CO2 and other pollutants, % of GDP, 2008. Excludes vehicle taxes

Defi

cit i

mpr

ovem

ent t

o st

abili

se d

ebt b

y 20

25,

% o

f GD

P

The modest claims of environmental taxes

Revenue, % of GDP

Source: OECD/EEA database on instruments for environmental policy.

How to squander a resource – the case of fishing

Source: “Sunken Billions”, FAO World Bank

Revenue, 2004

$78 billion

$50 billion

$10 bn+

Over-exploited(31%)

Fully-exploited(53%)

State of catch fisheries, 2008

Under-exploited(16%)

Operating deficit, $5 billion

Subsidies

Economic loss

Source: FAO

Source: Joint OECD/IEA analysis

Why make CO2 cheaper if you’re trying to make it scarcer?

USD 115 billion, 2009 investment in renewables

10% less emissions globally from

removal of fossil fuel subsidies

USD 312 billion2009 , developing country fossil fuel consumption subsidies

?

Income gains from unilateral fossil fuel subsidy removal (% change in HH income vs BAU)

Overcoming inertiaLifespan of capital investments

Rents embodied in

fossil fuel reserves

Sunk capital

USD 16 trillion

USD 6.7 trillion

World GDP

Source: OECD (Forthcoming) Green Growth Studies: Energy; World Bank.

Costs of moving too slow

300GW retired early (loss > USD 70 billion)

Coal-fired generation capacity, IEA 450ppm scenario

Infrastructure investment

Source: OECD

Global investment 2010-2030(USD millions)

Prices matter – and spur innovation

-20

0

20

40

60

80

100

120

140

160

180

0 100 200 300 400 500 600 700 800 900

SE

K p

er k

g N

Ox

Emission intensity in kg NOx per GWh

1991 1992 1994 1996

Marginal Abatement Cost Curves of Taxed Emitters

NOx Tax in Sweden

Source: OECD

Policy is not always cost-effective: the case of car scrapping

~555M€

-95M€-100M€

-300M€

Car value Fuel savings

CO2

avoided

Accidents Net societal cost

NOx

avoided

-50M€ -10M€

~3000M€

-305M€-410M€

-2235M€

France“Prime à la Casse”

Germany“Umweltprämie”

-40M€ -10M€

60

40

-80

0

Abatement potential Gt CO2e

201510

20

-60

-40

-20

-100

Paying more than market rates? The case of biofuels

Source:McKinsey Global GHG Abatement Cost Curve v2.0; biofuels subsidy estimates are by the OECD

19 Gt17 Gt

-40

100

40

-100

€150-700/t

€/t CO2e

LDV ICE improvement 1st gen biofuel

Transport sector

Adjustment may not be as widespread as you’d think

“Brown jobs” are easier to identify, but also account for only a small share of total employment in OECD countries

Source: EU-LFS, GTAP database, EU-KLEMS database

Innovation in unexpected places

Green Technology

Chemical Engineering Chemistry Material

Science Physics

Agricultural and Biological

Sciences

Immunologyand

Microbiology

Biochemistry, Genetics and

Molecular Biology

Energy

Earth and Planetary Sciences

Engineering

EnvironmentalScience

17.4%10.5%

4.9%

7.5%5.7%3.7%6.6%

4.8%

10.6%

9.5%14.2%

ScientificPapers

Patents

Patent-science link via citations

(100% = all citations)

Legend:

Source: OECD

It’s ok to imagine new patterns of growth and innovation

Source: Merrill Lynch

Major policy changes are underway around the world

Renewable energy promotion policies # of countries

Feed-in tariff 45

Renwable portfolio standard or quota 11

Capital subsidies, grants, and rebates 46

Investment or other tax credits 39 Sales tax, energy tax, excise tax, or VAT reduction 52

Tradeable RE certificates 20

Energy production payments or tax credits 13

Net metering 13

Public investment, loans or financing 42

Public competitive bidding 21

Total number of countries 81

Source: REN 21

Green Growth framework